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Wouldn’t it be great if HSA stood for Honest Simple Affordable health insurance? Actually it only stands for Health Savings Account, but despite the less attractive title, it still might be worth a look if you’re reviewing health insurance options during your benefits annual enrollment.
HSA health insurance plans have a high deductible of at least $1,200 for individuals or $2,400 for families. You save money in a Health Savings Account at a bank that you can use towards the deductible and other health care costs. The money you put into the account is tax-deductible (like an IRA) and any earnings are tax-free when you take money out (like a Roth IRA) as long as it’s spent on specific health care costs defined as “qualified” by the IRS. If you’re lucky, your employer might also contribute to your HSA. If you’re really lucky, you never need to use the money for health care, in which case you can use the money for retirement after age 65. Since you’re not using the money for health care costs, you’ll pay taxes on the money you take out but there won’t be any penalty since you’ve reached retirement age (like an IRA).
Does an HSA plan make sense for you?
You’re healthy and think you’ll stay that way. If you don’t expect to need much health care, why should you pay a lot for health insurance? All you need is protection for the worst-case scenario. If you wanted to save money after driving for years without getting into an accident, you’d increase your car insurance deductible to lower your premium. Now you can do the same with your health insurance. With a high-deductible HSA plan, you pay lower premiums since you don’t use health care regularly, but you still have protection from sky-high medical costs in an emergency.
You have a “healthy” emergency savings fund. If you do need medical care, make sure you have the money to pay your deductible and maximum out-of-pocket costs (both of which are annual, not one-time costs) so you don’t end up going into debt. Your emergency fund should have enough to cover both without being exhausted.
You’ve maxed out your retirement plans. If you’re a savings superstar who contributes the maximum to all the retirement plans you have such as 401ks, IRAs and Roth IRAs, you might be experiencing a savings high that you want to keep going. An HSA gives you the tax benefits of all those plans combined as long as you use the money for health care costs. Even if you’re fortunate enough to never need the money for health care and end up using the money for retirement, you can get the same tax benefits as a 401k or IRA with tax-deductible contributions in 2012 up to $3,100 for individuals and $6,250 for familes (add an extra $1,000 if you’re age 55 or older).
Like other health insurance plans, an HSA plan is not exactly simple and you can only hope the insurance company is honest, but it may at least be affordable if you’re healthy and have plenty of savings.
Qualified medical expenses
HSA contribution limits
Consumer Reports: http://www.hsacenter.com/2012limits.html
HSA Center (from Golden Rule Insurance Company): http://www.hsacenter.com/index.html